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Massive Hospital Settlement Stems from Largely "Technical" Stark Violations

By  Robert G. Homchick
01.14.11
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The recent $30 million False Claims Act settlement in the Detroit Medical Center (DMC) case is the latest settlement entered into by the Department of Justice (DOJ) and a hospital stemming from violations of the Stark Law that were largely "technical" Stark violations.

While the settlement included findings of nontechnical Stark Law violations allegedly of above-market compensation to physicians, it illustrates the real-life risks of making payments under expired physician contracts, or hosting a few dinner meetings with physicians at a cost to the hospital exceeding $359 annually per physician.

DMC was planning to sell its hospitals and outpatient facilities to Vanguard Health Systems, based in Nashville, Tenn., at the end of last year. Prior to the sale, DMC voluntarily disclosed to the government that certain of its financial relationships and contracts with physicians may have violated the law.

The DOJ found that DMC had violated the Stark Law, the FCA, and the Anti-Kickback Statute, "by engaging in improper financial relationships with referring physicians." DMC denied wrongdoing. According to the DOJ, "[m]ost of the relationships at issue in this matter involved office lease agreements and independent contractor relationships that were either inconsistent with fair market value or not memorialized in writing." It has been reported that DMC also furnished tickets for sporting events and meals to several physicians that exceeded the annual monetary limits permitted by the Stark Law, and that some physician contracts were not signed.

The DOJ has taken the position that Stark Law violations can constitute false claims under the False Claims Act (FCA). Applying the FCA substantially raises the stakes for hospitals: Liability for false claims means that a hospital is liable not only for the amount of reimbursement associated with services performed in connection with the referral in violation of the Stark Law, but also up to $11,000 per claim in monetary penalties, and treble damages. The DOJ has refused to concede that minor or "technical" violations of Stark should result in leniency or reduced penalties for hospitals under the FCA.

This and other similar settlements highlight the need for hospitals to have effective procedures in place for physician contracts to prevent (or minimize) so-called "technical" and other violations of the Stark Law. Key areas to monitor and focus attention include: payments without written contracts, unsigned contracts, expired contracts where payments continue, contracts without fair market value validation, lease rental charges and compensation in personal service arrangements not set in advance, and personal service arrangements that do not cross-reference other agreements between the same parties. This may necessitate contract pre-approval and accounts payable hold procedures in order to detect emerging violations. Hospitals also should explore implementing safeguards relating to physician expenditures for entertainment and the like to ensure that annual Stark Law limits are not exceeded.

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